Right now in the United States, we have social unrest, rioting, looting, and potentially even martial law.
Now, more than ever, it's crucial that you continue to hope for the best but prepare for the worst. And if you're trying to be intelligent with your financial future and your family's, you have to look at your upside and downside.
When we're investing or speculating, we want asymmetry. Meaning, very little downside and a lot of upsides.
In this article, I give you three steps that will help you to preserve and guard your future.
Step 1: Protect Your Home Equity
How to chaos proof your financial future?
I wanted to start with this is a chart going all the way back to 1900 of home prices in the United States adjusted for size and inflation.
This chart is one of my favorites. It goes from 1900 to 2010, and on the left, from 60 to 200.
In 1900, it started off right around the 100 marks, stayed consistent and it went down to 1920, notice that it was after the Spanish flu and World War I. Then, it stayed very low until World War II.
It popped back up to about its historic average and remained consistent until 2000. Please note that for a hundred years in the United States, home prices didn't go up or down. It stays the same when you adjust for inflation and size.
Most people, I think, would be shocked by that information alone. But…
What happened in 2000?
Well, of course, we got into a housing bubble. Prices went parabolic all the way to 2006 and then they came crashing down till they bottom out around 2012.
Where did they bottom out?
Of course, on their historic trend line.
What is the no bueno zone?
I use this term a lot in most of my videos and articles. The no bueno zone is when things start to get expensive and you can see that from the red line on the whiteboard. That's when we're getting into the no bueno zone.
When we are below the line, prices are pretty darn cheap, but if we are above the line we're in the no bueno zone.
So, where on Earth were we in 2006?
We were in the no bueno zone stratosphere. After noticing this, the question becomes:
Where are we in 2020?
Almost as high as we were in 2006. In fact, in some markets, prices are even higher. If we were in a bubble in 2006, which I don't think anyone would dispute.
How are we not in a housing bubble today?
Prices are almost the exact same.
If you're trying to be intelligent with your financial future and the financial future of your family, you have to look at your upside and your downside.
When we're investing or speculating, we want asymmetry. Meaning, very little downside and a lot of upsides.
Right now with home prices, it's the opposite. Your asymmetry is completely flipped. Meaning your upside is very little and your downside is potentially massive, 50%, 60%, even 70% when you adjust for inflation.
If you live in one of these cyclical high tax, urban areas, you really want to think about selling.
Right now in the United States with social unrest, looting, rioting…
Do you really want to have your home equity, potentially the majority of your net worth, in one of these urban areas?
And let's not forget about taxes, the states are broke.
I can almost guarantee you that in the future, they're going to be jacking your property taxes and putting in additional sales tax. They're going to get desperate and you're going to have a target on your back.
My best advice is to consider selling now to protect yourself or move your equity. If you can't sell, maybe you can take equity out in the form of a refinance.
I know it's not right for everybody, but I think it's something you need to start considering, especially if you live in one of these markets.
What can you do with the equity?
First and foremost, keep some dry powder for heaven's sake. You might be able to move that equity to a more linear market where you can get a better RV ratio.
Maybe you can buy some rental properties or some cheap dividend-paying stocks, something that pays you to own it. I'm not saying rush right out and buy these things immediately.
I'm saying start paying attention, protect your equity now. Get it in some dry powder and just let the market come to you. Be very patient.
I think over the next year or two, prices are going to come to you. You don't have to chase them.
What everybody can do, regardless of whether or not they can sell, is they can at least make sure their mortgage is a 30-year fixed rate.
Make sure that you have a short against the U.S. dollar. Hopefully, if we get some inflation, which we most likely will over the long-term, 10, 15 years, you'll be able to pay back your mortgage with cheaper dollars. That's a transfer of wealth from the bank to you.
Also, think about consumer debt. You really want to eliminate as much as possible. I don't think now is the time to go out and run up the credit card on consumption, especially because it's not a fixed rate.
Step 2: Go Long On Volatility And Taxes
I'm not just talking about going long on volatility with your portfolio, but also with your physical location.
To see how the pros are executing this in their portfolio and their personal lives, here is a transcript from a recent Real Vision interview with Raoul Paul and Hugh Hendry.
Hugh Hendry: Last year I borrowed five million euros, 20 years fixed, and I paid 2%, and 2% was the wrong figure. It should have been like 1.3%, but I was like, “Whatever. Hit me, hit me, hit me.”
Let me just say that again, I borrowed five million euros to buy a property in St. Bart's, and a French bank was willing to lend me fixed. That is assuming the euro.
That's a world where gold is going to go to 3,000 because it's going to be difficult. But there's enough financial lubrication that it won't be the 1930s, but it's going to be a world of zero interest rates for a long time.
I just don't think banks are that smart. I think they've got that wrong, and I think they've got that wrong like their German cousins after the first World War.
(End Of Transcript)
I know what you're saying, “George, I can't buy property in the Caribbean. This is pointless.”
But I can promise you, this is very applicable to the average Joe and Jane in the United States. We first have to understand the concept behind why they did what they did.
First, they took out fixed-rate long-term debt to buy a hard asset that gave them a positive carry.
In other words, positive cashflow. This asset was scarce and it was in a jurisdiction where the tax rates were very low.
Hugh Hendry points out that he thinks banks are going to be on the wrong side of history, just like they were in Germany right after World War I.
What he means by that specifically is 1920s Weimar Germany hyperinflation.
As long as you buy an asset in this category, even if you don't use debt, maybe you're a person that really doesn't like debt and I totally respect that, but if you pay cash for it I still think it's going to be a great hedge long-term.
Even if we don't get hyperinflation in the United States over the next 10, 15, 20 years, the probabilities are very high that we'll at least get substantial inflation like the 1970s.
Even for the guys and gals that are dollar bowls right now, over the short term, even up to 5 years, I think that the dollar is headed down in value. In other words, we're going to get a lot of price inflation over the long term.
This strategy is also about improving your personal freedom, getting a place where you don't have to worry as much about going into lockdown, riots, looting, or even martial law.
Now, let's go over some specific, actionable ideas that you can put into practice. Look at the three characters on the board.
There is poor Peter, middle-class Mike, and rich Richard. Poor Peter doesn't have as much flexibility, but he does have some options.
He can move to a better neighborhood or maybe not just a better neighborhood, but a neighborhood where more of the people that live there actually own their property.
Why is this a good idea?
Because I would assume that people are a lot less likely to burn down a property that they actually own, you can also go into a more rural area with some space to grow some food and at least get some exercise.
Examples of this in the United States are the no bueno zones we talked about in step number one, those are the big cyclical markets, urban areas, and high tax zones.
But there are some areas where you could find some opportunity.
Some of the places that came to mind for me, and again, you can apply this to whatever geographical location you're most familiar with, Mount Hood, Bend, Astoria, Oregon, Arizona lakes, Flagstaff, Sedona, huge for tourism, and Snowflake are one of my favorite places on earth. Also Moab and Utah.
All of these locations are going to have properties that are very scarce and unique. But remember, it's also about cash flow,and for this, we have to get creative. It's going to be hard work, that's for sure.
There's no easy way out, It's not the 1980s where you can buy a 10-year treasury and get a 10% yield all day long.So to get more cash flow you can aim at farming, maybe hunting…
I have friends in the Midwest who own a lot of property and they lease it to deer hunters. A bed and breakfast, or maybe an Airbnb.
My buddy, Eric with Macro Voices has a fantastic spread on the Northeastern coast, kind of a bug-out place for people wanting to get out of the insanity of New York City. Maybe a rural business.
I also have friends in the Grand Canyon that bought property there, setting up a campground for these specialty RVs called Airstreams and Shasta.
My sister lived on a hundred-acre vineyard, and just sold it. The bottom line is, you have to use your imagination.
As I was going through the whiteboard and drawing this, something really crazy, way outside the box came to my mind.
Maybe you can get a rural location and set up a facility for gold storage, maybe silver storage, or maybe even cash storage if interest rates go negative.
Next is middle-class Mike, he has all the options we just outlined for poor Peter, but maybe he has some more flexibility.
He works online, maybe he's a retiree that's getting social security or has a pension fund, so he can look at what I call geo arbitrage. Geographical arbitrage.
Hat tip to my good buddy, Jason Hartman, who came up with that term. It refers to moving to a different country because you improve your freedom, lower your taxes, and increase your purchasing power substantially.
As an example, I ran some numbers comparing Miami to where I am right now in Medellin, Colombia. The cost of living in Medellin is 65% lower than it is in Miami.
I know what you're saying, “George, well, Miami is a really expensive place.” Okay, fine. Medellin is 56% lower than Little Rock, Arkansas.
To put this into dollars and cents so we can really understand it, in Medellin, if you had $1,500 a month, you'd have the same purchasing power as if you had $5,600 a month in Miami.
And it becomes even better when you go over to rich Richard.
Yes, he has all of the options I have mentioned and the geo arbitrage, but he also act 20 and 22 in Puerto Rico, which could take his tax rate to whatever he's paying in the United States down to 0% in Puerto Rico, also 0% potentially on some capital gains.
He also has the options that Raoul and Hugh were talking about for the Caribbean. But to add some numbers to rich Richard, let's say he's making $100,000 in the United States, his effective tax rate is 20%. That means by moving to Puerto Rico, he's saving $20,000 a year.
When you add that to his cost savings for the cost of living and a 5% per year return over 20 years, rich Richard would save $1.2 million.
This is why you need to understand the concepts we're talking about like going long volatility, whether it's for your portfolio or your physical location to improve your freedom and your security.
For poor Peter, it's a great idea. For middle-class Mike, it's a fantastic idea and for rich Richard, it's a complete no-brainer.
I forgot a couple of things for poor Peter. When I was looking at my notes, I realized it might not be realistic for him to buy property in Moab, Bend, Mount Hood, Sedona, or something like that.
But I think there are a few things that he could do in addition to try to move to an area or a neighborhood where there are more owner-occupants.
- You can house hack because it's the best financial advice I can give to anybody. You can take the money you would've spent on rent or your mortgage payment, and you can use that to build up some savings and invest for the future.
2. You can ask to be transferred. Maybe you're in one of these places like San Francisco, L.A., New York, Baltimore, Chicago, or in one of these urban areas with high taxes that you just want no part of it.
Why don't you ask your company if you can transfer to a different location?
Maybe you work for a big corporation that could transfer you up to Bend, Oregon, maybe Billings, Montana, Boise, Idaho, someplace where you can have a lot more peace of mind, not only from a personal security standpoint but a financial standpoint as well.
Step 3: The Items Everybody Must Have
You know what I'm going to talk about… Of course, that's gold, silver, and bitcoins, things I definitely think everyone should own, but for many different reasons. Those of you who read my artciles know exactly what I am talking about.
During the month of June of this year, I was looking at some charts over the weekend, and gold and silver opened up the futures market around five o'clock on Sunday like this:
Bitcoin trades 24/7, and I noticed gold and silver were up, but Bitcoin over the weekend was actually down.
It was actually up during that month and I'm not saying this is going to happen indefinitely into the future, but it got me thinking that gold and silver are obviously fantastic hedges against social unrest.
Especially the type of unrest where people just want to bug out and get to the country and just hang out for a while, maybe barter back and forth with something they know has had value for the last 5,000 years.
Bitcoin seems to be maybe for monetary unrest. For example, we have seen hyperinflation in Venezuela or when they put up capital controls like China where they won't let you take yours out of the country.
Now let's go over some items that I can promise you nobody talks about.
You're definitely not going to hear this on Real Vision, that's for sure.
I think everybody, whether it's poor Peter, rich Richard, or middle-class Mike should have an RV and a good old fashioned diesel truck in their driveway.
Think about it.
- Why not?
- Wouldn't you want an RV parked in your driveway, ready to go, stocked with food so you can hop in drive right out to the mountains, the lake, and just watch everything happen from a distance?
Also, you can make a lot of money with these things. I've owned several Airstreams in the past.
My friends have made a lot of money with Airstreams and canned hams, or those Shastas. Everybody loves those things with the wings in the back, you can actually cash flow them.
When they're in your driveway, you can rent them out nightly on Airbnb or there are specific websites that do peer-to-peer RV rental.
This is what's so cool about this, is it's not only a way to have some freedom, get outside of the chaos if necessary on a moment's notice, but it's a way to increase your cash flow and make a little bit of money.
Also with the trucks, I think they're a great store of value if you get the right ones, those 1990s Dodge Cummins and the Ford Power Strokes.
Lastly, what every American has to have is a passport, and I would suggest considering getting a second passport.
Here are some of the countries in the Caribbean where you can get a second passport with an investment of bonds or maybe real estate.
You can just purchase them outright, these passports are on sale right now, big time, because the islands don't have any revenue coming in from tourism because of the Coronavirus, so a lot of these passports are half priced.
Places like Antigua, St. Kitts, and Dominica are all on sale, and I know they might look a little pricey, but keep in mind, they're probably half of what they were even two or three months ago.
I know this isn't right for everybody, but even if you're a die-hard patriotic American, you're all about the red, white, and blue, I can totally respect that, but I think it's something you should consider.
If you had a second passport sitting in your drawer right now, you have to ask yourself…
What's the downside?
There is absolutely no downside and almost limitless upside.
Remember what we always like to find in our investments or speculations: Asymmetry. And I don't think there's anything that has more asymmetry than having a second passport right now, especially when you consider what's going on in the United States.